Obamaâ€™s New Stimulus Czar

By: Daniel Hanson

Obamaâ€™s selection of Alan Krueger to head the Council of Economic Advisers might be an upgrade from Austan Goolsbee, but not by much. Obamaâ€™s new economic adviser lacks the foresight to craft an economic agenda to actually put Americans back to work, and his selection demonstrates the Obama administrationâ€™s stubborn refusal to part ways with a failed ideology.
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Krueger, a well-respected Princeton professor, is top-notch in many respects; as a researcher, his work on statistical fallacies related to education, terrorism, and the structure of labor markets has helped expose many problems in public policies. Yet, while his work in these areas makes him good at analyzing economic data, it does not necessarily make him good atÂ devising the right kind of economic policy.
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Insanity entails doing the same thing repeatedly and expecting different results, which is precisely what President Obama seems to be doing with his selection. Kruegerâ€™s resume includes advocating a value-added consumption (VAT) tax in addition to our dysfunctional income tax, directing economic policy at the Treasury from 2009-10, and creating the Small Business Lending Fund, a program modeled on the low-cost mortgage lending that produced the housing bubble. For an administration that claims to be searching for new policy options, bringing in Krueger seems to broadcast a reluctance to change.
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The president assumes that bringing a labor economist on board will help rejuvenate a dying jobs agenda, but Kruegerâ€™s record is anything but pro-job creation. Krueger is an ardent advocate of a stricter regulatory environment to curb carbon emissions, posing a massive threat to the energy industry, one of the few industries currently booming in the United States. As a member of President Clintonâ€™s Labor Department, Krueger,Â usingÂ his case study of the fast food industryÂ as evidence, famously predicted that raising the minimum wage would create more jobs for low-skilled workers. Yet, African-American male youths, facing 40 percent unemployment today because their labor has been priced out of the market, know all too painfully the economic damage inflicted by such wage controls.
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The reality facing the Obama administration is that its Keynesian tools have failed, and the economic advisers that continue to prescribe more intervention to bolster markets refuse to acknowledge their impotence. Krueger is the master of short-term Keynesian stimulus, structuring both the â€œCash for Clunkersâ€ program and two homebuyer tax-credit programs. Such programs provided a minor short-term boost for the economy, but once the delirium of the cheap-cash binge wore off, the hangover sapped away any minor gains that were to be had.
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By appointing another Keynesian apologist to direct his economic policy, President Obama is confirming his intention to steamroll the efforts of his own deficit-reduction commission to spur economic activity. Last December, after eight months of deliberation, the National Commission on Fiscal Responsibility and Reformâ€”established by President Obamaâ€”delivered a sterling plan to create a sustainable future for U.S. fiscal policy. The commissionâ€™s commonsense approach advocated lower marginal tax rates financed through the closure of arbitrary tax loopholes, regulatory reductions to drive innovation, entitlement restructuring to fix Social Security and Medicare, and spending cutbacks through the elimination of wasteful and redundant programs. Most importantly, its recommendations would roll-back federal spending to about 19 percent of GDP, roughly consistent with historical post-warÂ levels.
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Both parties have given lip service to the commissionâ€™s recommendations, but the White House has thus far ignored the recommendations carte blanche, choosing instead to endorse the failed policies of its first two years in office. The ghost of Keynes is looming large in a White House that stubbornly refuses to listen to American innovators and entrepreneurs, who have consistently complained of the hostile economic environment born from Washingtonâ€™s failed stimulus and regulatory policies.
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Perhaps Krueger will buck the trend of his career by offering truly refreshing, commonsense solutions to President Obama. He is a good statistician, and the numbers do not lie. The economy has been crushed under a burden of unfair taxation, ballooning deficits, and exploding regulation. Unemployment remains persistently high despite the deluge ofÂ policies explicitly targeted at job creation. Maybe Krueger will look at the numbers and ignite a renaissance in free markets within the White House.
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Given Kruegerâ€™s historical record, the Obama administration is not banking on it. He will be expected to put lipstick on a pig as he dresses up the numbers to make President Obamaâ€™s Keynesian agenda look healthy for an anemic economy. But maybeâ€”just maybeâ€”Kruegerâ€™s love of numbers will enable reality to trump ideology.
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â€” Daniel Hanson is a researcher on issues of economics and public finance, focusing particularly on monetary policy and state wealth management. He is also a 2011 graduate of Grove City College and a former student research fellow with The Center for Vision & Values.